The cost of Transmission Gully – a four-lane, 27-kilometre motorway - may blow out to more than $1 billion after the New Zealand Transport Agency agreed to pay the contractor another $190.6 million.

Contractor Wellington Gateway Partnership got about half as much as it wanted. It was seeking $352m from NZTA over delays starting the work.

The government's 2019 accounts noted the size of the claim as a contingent liability and said it "relates to the delays in the commencement of work."

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The $190.6m settlement is conditional on the contractor, Wellington Gateway Partnership, becoming a party to the settlement, NZTA said in a release today.

"The parties are working through satisfying the conditions and obtaining the necessary approvals," NZTA said.

Wellington Gateway Partnership declined to comment.

It won the $850m contract in 2014 to design and build Transmission Gully and maintain it for 25 years. The venture consists of Cimic Group's public-private partnership unit Pacific Partnerships, Accident Compensation Corp's investment arm, and global investment manager InfraRed Capital Partners.

An 80/20 joint venture between Cimic's CPB Contractors and HEB Construction was sub-contracted to build the four-lane highway and the task is now expected to be completed by Christmas, almost nine months later than the original March 2020 deadline.

The JV sought relief after work was delayed by the 2016 Kaikoura quake and flooding around the same time. It was granted a 20-working day extension last year.

"Progress has been slower than anticipated due to a number of issues encountered during construction including the Kaikoura earthquake in 2016 which diverted resources and materials," NZTA interim chief executive Mark Ratcliffe said today.

He noted construction had been impacted by the challenging conditions of the site and had required an increased earthwork programme.

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"These issues, and the impact from several storm events and the Kaikoura earthquake, have meant CPB HEB JV has incurred significant additional costs to construct the project," he said.

Ratcliffe said the "financial relief" was provided in acknowledgement that the issues were out of the control of CPB HEB JV and not something it could have reasonably anticipated.

Ratcliffe also included further caveats around the December target for competition.

"CPB HEB JV will be working very hard to complete the motorway by Christmas, subject to good progress through the next six to nine months and to passing a series of standard quality safety and environmental checks prior to opening," he said.

The money for the settlement would come from the National Land Transport Fund and would not impact any other projects currently being progressed on the State Highway network, NZTA said.

The government valued the Transmission Gully PPP assets and liabilities at $854m as at June 30, up from $603m a year earlier.

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